Music startups: your product is probably just a feature

If startups have a one in 10 chance of surviving, music startups' odds must be one in 10,000. The industry's most famous success story, Napster, is also its most famous failure. And aside from Last.fm, which sold to CBS in 2007 for $280 million, few have successfully exited since. It's a prickly, difficult industry that's as attractive as it is impossible.

Peter Kafka noted as much last week when he questioned the logic of anyone launching a music startup in 2012, citing the incredibly high burn rate it takes to get to any sort of scale. This is true -- the cost to license music and stream it in the US is insanely high and somehow artists don't seem to think it's high enough. Incredibly, after more than 10 years of music industry declines and digital innovation, they're making Pandora and Spotify into a Napster-like villian. Spotify and Pandora are hoping the movie ends differently this time around, but it's a very big bet.

As VC and founder of eMusic David Pakman explained in his post about who has the power in media, Spotify will never have leveraging power over the record labels because of the industry's concentration of supply. There are only three major labels controlling around 70 percent of the world's music catalogues. "Highly concentrated popular content allows owners to extract unprofitable rights deals," he wrote.

That's why so many startups are working around the streaming and licensing issue, focusing instead on live music, or artist promotion, or building niche tools for the music industry itself.

Some are innovative, but many remind me of FNAC, the acronym made popular by Chris Fralic and Mark Suster. It stands for "Feature, Not a Company," and it applies to a vast majority of the consumer music startups I see. If its pitch is something like, "Spotify is great, but don't you wish you could (fill in blank with one missing feature)? That's what StartupX does," it's probably a FNAC.

The problem with FNAC startups in the music industry is particularly acute for two reasons: One, all we want is music. The listening startups' core offering, music, is basically a commodity because the costs of licensing is the same for everyone. (Unless you're Spotify and have gone through the arduous, expensive, time-consuming process of negotiating individual deals with the record labels.) So the only real differentiator they have is the way they present the music, with features.

That's the second part of the problem, too: The last thing listeners want in a music streaming service is more features. Typically when a user opens a music application, he or she wants to listen to something right now, not to browse for 15 minutes discovering new artists.

That's how Songza blew up this year after toiling in obscurity for a few years. The company decided to make its service mind-numblingly simple, focusing on a "concierge" that helps you choose a playlist that's perfect for the moment in just two clicks. It took off immediately. As Fred Wilson has said, "mobile does not reward feature richness." The reason Spotify doesn't have the feature your startup is offering is not because no one at Spotify has thought of it yet.

Look no further for evidence of this than the mother of music players, iTunes, created by a company which prides itself on minimalist design. Farhad Manjoo called the latest iTunes release a "horrible, bloated program" that needs to die. It has too many things going on between its store, music player and sync manager, he argued.

Spotify, the biggest and most well-funded of this wave of music startups, looks a lot like an ugly version of iTunes. But with its revamped, feature-rich update, due to hit devices in the new year, the company is moving away from that. I haven't gotten a chance to use it, but the preview I was presented last week showed a streamlining of many of Spotify's excellent but perhaps under-used features like radio, recommendations, and artist discovery into one superfeed. It includes the apps from Spotify's app store, too, combined to look a bit like a playable, save-able, interactive music blog. The point is to make a wide array of features feel very, very simple.

If you think about it, traditional radio is the simplest of all. I have a buffet of listening options on my phone – Pandora with all of my well-honed stations loaded, Songza's concierge playlists, on-demand Spotify playlists that I pay to access on mobile, etc. And yet, when I get into the car, I almost always listen to radio. I even have my phone out for navigation, but it's just not worth the trouble of booting up an app. That could change if I ever upgrade to a fancier car with built-in apps. But the point is that simplicity -- with as few options and features as possible -- will always win.

For many music startups, a twist on what's already out there is enough to launch and pray for scale. But if all users want is the music, delivered as quickly and efficiently as possible, then adding tweaks to the existing offerings of Spotify, Pandora, Rdio, MOG, or any other service is not going to be enough to tear users away from those services. And without users, a feature won't ever magically become a company.